Shale gas, reshoring spell good news for US manufacturers

By: Frank Esposito

November 7, 2013

CHICAGO — Economies around the world are improving, with North America in particular improving as new supplies of shale gas feedstock come on stream.

“The dull, old economies are showing signs of life, even as the emerging ones look a little wobbly, IHS chief economist Nariman Behravesh said at the Global Plastics Summit, held Nov. 4-6 in Chicago. The event was co-hosted by Houston-based IHS Chemical and the Society of the Plastics Industry Inc. in Washington.

“The world stage is set for modest acceleration this year and into 2014,” he added. “U.S. growth is set to strengthen in spite of the problems in Washington. China growth is stabilizing but there are major challenges ahead.”

North American GDP growth is expected to average 2-3 percent through 2020, with Western Europe checking in at 1-2 percent in that period. Behravesh added that he does not expect the U.S. Federal Reserve to increase interest rate until early 2015.

Shale gas and oil development also are reducing U.S. dependence on foreign energy, according to Bill Sanderson, vice president of downstream research and consulting for IHS. Imports of crude oil soon will fall below pre-1970 levels and are expected to stay there through 2025, he said.

But at the same time — even with lots of new oil coming on — prices need to remain above $80 per barrel for development to be economically viable, Sanderson added. As a result, oil prices are expected to remain in the $75-$120 per barrel range through 2025 — a range that he described as “relatively strong by historical standards.” Natural gas prices also are expected to remain relatively stable in the $4-$5 per unit price range through 2025.

The U.S. additionally is benefiting through manufacturing work coming back to the region — primarily from Asia — in a practice that’s come to be known as reshoring.

One industry survey estimated that almost 40 percent of firms with annual sales of more than $1 billion are planning or considering moving production from China to the U.S., according to Michael Taylor, senior director of international affairs and trade for SPI.

Taylor also cited a recent MIT study that showed that 14 of 108 multinational companies polled were reshoring as well.

Reasons cited for the moves included problems with quality, language, culture, graft and intellectual property protection in China. The U.S. now offers lower energy costs and a relatively weak dollar, Taylor added.

“U.S. manufacturers are becoming more competitive, while Chinese plastic processing is seeing slower growth,” he said. “U.S. businesses also are very innovative, which gives us strong reasons to be very optimistic moving forward.”